Tuesday, June 22, 2010

It seems someone has filed charges against the people involved in an alleged plot to pay port operator Reghis Romero II for his failure to finish the Smokey Mountain reclamation project, right before the Arroyo administration steps down. But that’s not the only supposed “midnight deal” involving Romero that’s in the news.

Over at the Subic Bay Metropolitan Authority, members of the corporate-style board that runs the government corporation operating the former US naval facility are in a tizzy after the Ombudsman subpoenaed them en masse for approving a deal that handed over port operations to Romero’s Harbour Centre Port Terminal Inc. And SBMA Administrator Armand Arreza, Chairman Feliciano Salonga and the members of the board also have to deal with a motion to suspend them right before they leave office because of their involvement in the allegedly anomalous project.

The Ombudsman’s intervention is a victory for the small operators of ports in Subic who have been protesting the deal with Romero, because it basically renders their “live” leases to the berthing facilities useless. Furthermore, the operators allege that Romero’s Subic proposal will fry the government in its own oil, as they say, even as the state hands over a valuable revenue stream to the businessman’s company.

Subic watchers say Arreza and his board have no one else to blame for their current predicament, since they’ve been warned about pushing the deal with Romero repeatedly in the past. Arreza himself has often said that those who want the deal scrapped can go to court, since he has no intention of backing down on it.

What, exactly, is Romero’s deal with SBMA? And why did Arreza, Salonga and the authority’s board push for its approval, despite the warnings that it may be illegal, disadvantageous to the government and one-sided in favor of this ubiquitous port operator?

As we’ve written earlier, Romero’s company entered into an agreement with SBMA to jointly develop, operate and manage the ports at Subic last Feb. 24. The joint venture agreement covers all existing ports and wharves in SBMA property at Subic, facilities that are already being run by small operators who hold 25-year leases to them.

Arreza told the small port operators that their contracts will be respected by the agreement, even if it is not clear what ports Harbour Centre will get to operate. The joint-venture agreement, after all, covers the old Naval Supply Depot, Boton, Alava, Rivera and Bravo wharfs—all of which have been given to the small operators for many years now.

The deal began when the SBMA board “accepted in principle” an unsolicited proposal from the Romero last Nov. 20 to be the exclusive operator of Subic’s ports. According to the signed joint-venture agreement, the Romeros proposed a combined fixed and variable revenue-sharing scheme with SBMA for operating the bulk, break-bulk and general cargo operations at the freeport for 25 years.

In exchange for being granted the exclusive rights to the Subic ports, the Romeros agreed not only to share revenues and pay a fixed fee but also to improve and expand the ports, provide state-of-the-art cargo handling equipment and technology infrastructure and integrate the main commercial ports for non-containerized cargo. In the first three years, the Romero company committed to invest P200 million in the ports to start the development and to meet fixed annual cargo volume traffic quotas.

As an unsolicited proposal, the HCPTI offer was opened to a “Swiss challenge” from any other party who can offer SBMA better terms. However, according to the small port operators, the authority seems to have its mind set on accepting the Romeros’ proposal, because none of the existing leaseholders have the same declared capitalization (P2 billion) and capabilities as HCPTI. In fact, a week after the SBMA board accepted the Romeros’ offer in principle, Arreza and his board threw out a similar offer made by Amerasia International Terminal Services Inc. and another local operator, Mega Subic Terminal Services Inc. for insufficiency of content and form.

But most of the other small port operators did not challenge the Romero deal, fearing that they would have to give up their rights to their leased facilities and forfeit their contracts, thereby allowing HCPTI to claim that they won the rights to all the ports and wharves fair and square. Besides, if they did challenge the proposal, they would have to waive their right to sue SBMA—which is exactly what they did before the Ombdusman.

* * *

The subpoenas issued by the Ombudsman were based on a complaint filed before the anti-graft body by Subic port operator Amerasia, alleging bad faith on the part of SBMA when it signed the deal with Romero and issued the call for an apparently rigged Swiss challenge. Now, another port operator, Subic Seaport Terminal Inc., wants the SBMA officials and board members suspended for pushing a flawed deal that is also greatly disadvantageous to the government.

According to the new complaint, the authority “gave away SBMA’s business and/or shared its profits with Harbour Centre,” the underserving beneficiary of this largesse. By “doing nothing” and becoming the de facto middleman in the port’s operations, the complaint said, Romero’s company will both reduce government’s take and cut into the revenues already being made by the current small operators.

Furthermore, the complaint said, the SBMA officials approved the joint-venture agreement with Romero despite Harbour Centre’s failure to meet the technical and financial requirements set by the National Economic Development Authority for such deals. In particular, the complainant said, the Romero company said it would provide only 22.3 percent of the equity share in the total cost of the project (financing the rest with loans) and that it failed to pay the required security bid set by Neda’s rules in the amount of P100 million.

In other words, Romero intends to fund a P6.4-billion port modernization project with loans and tariff revenues it will collect in behalf of SBMA as the overall operator and middleman. This is truly an amazing offer, considering that there are already port operators in Subic to begin with and even if the government will have to give up its revenues to pay for a middleman that it doesn’t really need, since being the overall administrator of Subic is already SBMA’s job.

Now, what could have possessed Arreza, Salonga and the other officials of SBMA to go into a quickie agreement that would hand over all of Subic’s ports to Romero’s company? That’s what really puzzles the small port operators, who claim that Romero—despite his high-profile claims of expertise in port operations and management—is actually a greenhorn in their line of work.

In a position paper to the SBMA board last April, the small operators noted that while 85 percent of the Subic project “involves cargo handling, [which is why] HCPTI must be disqualified because it has no direct expertise in the cargo handling business. In fact, all its cargo handling requirements [in its Manila port] are subcontracted.”

Of course, Romero’s powers of persuasion are now almost the stuff of legend, beginning with his feat of convincing the Ramos administration to fund the Smokey Mountain reclamation project and continuing until he now, when he is claiming payment on top of ownership of reclaimed land where he was originally just the contractor. And if it is true that Romero was able—almost—to convince the boards of both the Home Guaranty Corp. and the National Housing Authority to see it his way in Tondo, why wouldn’t these same powers serve him in good stead in Subic, as well?

Saturday, June 05, 2010

The business page headline story that came out the other day in a major daily—about two big companies filing a complaint before the Office of the Ombudsman to ask it to halt the signing of a joint venture agreement between Subic Bay Metropolitan Authority and Harbour Centre Port Terminal, Inc. owned by the Romero family—should not come as a surprise to those who have following media reports.

The filing of the complaint before the Ombudsman to stop the deal may be a little puzzling precisely because the signing of the agreement has not yet taken place. In fact, SBMA is still in the process of getting the legal opinion of the Office of the Government Corporate Counsel on the legality of the joint venture.

But the story assailing the proposed JV is not surprising at all. Even before this particular news story came out, SBMA had already been the object of a vicious media campaign which is obviously designed to handcuff the agency and prevent it from consummating the joint venture.

Those who have been following the attacks against SBMA on the proposed agreement with HCPT for cargo handling in Subic ports should have noticed that the negative stories about the proposed deal has not touched on the most important issue: the business angle.

What is sad is that the aggressive PR campaign launched against SBMA to handcuff it is grossly misleading the public. The prevarications should be unmasked in order to let the public judge the proposed agreement on its merits.

There is a danger that the truth would be drowned by the obviously well-funded PR blitz against the deal. Media veterans are well aware that the entities funding the PR blitz are not definitely groups that we can call “small”.

First things first. The primary job and mission of SBMA is as steward of that crown jewel called the Subic Freeport. As such, it is primarily business-oriented. SBMA is always on the lookout for excellent business opportunities. By this we mean those opportunities that would expand its revenues that in turn can be used to fund further improvement and expansion. This will create more jobs and contribute to the national economy.

The SBMA is duty-bound to look for and tap such opportunities. It would be a betrayal of its mandate should it see an excellent opportunity and then look the other way, pretending that the opportunity is not there.

This is exactly what happened.

The Romeros of HCPTI came up with a proposal that promises better revenues for SBMA and an assurance that the agency would be able not only to service the foreign loans used to modernize its ports but also and earn extra income.

The HCPTI offer is obviously better business than what SBMA is getting out of the current arrangement with the group of businessmen whose PR spinners have positioned as “small port operators”. Port operators, yes. But small is definitely a debatable adjective.

The proposal of HCPTI came via what is called an “unsolicited proposal” governed by the so-called joint venture guidelines of the National Economic and Development Authority and subject to a “Swiss challenge”. The proposal was unsolicited because SBMA did not ask for it. Never asked for it. HCPTI being a business entity is always on a lookout for excellent business opportunities and as a major player in port operations in the Philippines it saw one in putting Subic as part of its integrated port operations.

Contrary to what the “small” port operators would have the public believe, SBMA did not just swallow and accept the HCPTI proposal. SBMA strictly followed the guidelines for unsolicited proposal. It negotiated for HCPTI to improve its initial offer. Part of the process is the so-called Swiss Challenge where other interested parties including consortiums are asked to submit a better offer.

Nobody did. A couple of firms from the group of the self-proclaimed “small operators” have earlier made some offers but they were inferior to the proposal of HCPTI. Another firm bought documents for the Swiss Challenge but nothing was heard from it after that. At the end of the day, no one came up with a proposal to challenge the HCPTI offer. Clearly, as far as SBMA is concerned, the HCPTI proposal is the best it has on the table. It’s a good business decision to enter into a JV with the proponent.

There are two misleading propaganda lines that the multi-million PR blitz would have the public believe.

First that the joint venture is a “midnight deal”. Farthest from the truth. The unsolicited proposal process under the NEDA guidelines takes time. It is not like the proposal was received last month and processed immediately to beat the June 30 guideline. The unsolicited proposal of HCPTI, which triggered the process, was in fact sent last year. The fact that the venture, if OGCC opinion says it legal and aboveboard, is ready for signing just as the present administration is preparing to step down is the result of the long process.

The use of the pejorative term “midnight deal” is a propaganda line. The public should be wary about this.

The second misleading propaganda line is that SBMA would lose money if it enters into a joint venture with HCPTI. The claim is that the group of “small” operators was able to remit the amount of $840,000 in 2009 which is more than the $500,000 revenue for the first year of the JV.

The first “untruth” about this claim is that the $840,000 includes their lease and rental of the SBMA warehouse facilities and not from cargo handling payments to SBMA. The leases for the warehouses operated by the complaining operators will continue and SBMA should continue earning from them.

What are covered by the proposed joint venture are just cargo handling and arrastre services.

The line about the lost revenues for SBMA peddled by the “small” operators is vicious and maliciously misleading.

What the PR operators are not telling the public is this: that their principals are operating on an arrangement that has not guaranteed share for SBMA. The agency is at the mercy of the fortune or misfortune of their operations. It is dependent on the best effort of the operators and if business is bad for them, SBMA will get little money from their operations.

Under the agreement, SBMA has an assured and guaranteed income. This means that whether or not the venture makes money, there is a fixed pre-agreed amount that HCPTI must pay to SBMA.

The total amount of money the agency is guaranteed under the proposed deal is $32 million in 25 years. Given the average remittance made by the “small” operators under the present conditional and highly contingent arrangement, it would remit a total of $16 million in $25 years.

The $16 million expected from the “small” operators would not be enough to service the Japanese loan incurred by SBMA to construct and modernize its ports. The $32 million guaranteed under the agreement would be sufficient and would mean extra income for SBMA. And the $32 million is just the minimum guarantee. If the JV makes good business as expected then SBMA would earn more.

Given the comparative figures, the business decision was easy for SBMA to make.

Wednesday, June 02, 2010

After so much wrangling and fault-finding, the long-overdue plan to modernize the Subic Bay port and make it at par with international standards is about to take a leap from blueprint to implementation stage.

Since the Americans left the former naval facility in Zambales with the expiration of the bases treaty in 1992, government planners have envisioned the Subic port to be a highly competitive international service and logistics center in Southeast Asia providing efficient movement of travelers, products and services.

To translate this goal into a reality, the Harbour Centre Port Terminal Inc. (HCPT) submitted an unsolicited proposal to the Subic Bay Metropolitan Authority to develop and manage parts of the former naval supply depot in the freeport.

With the HCPT’s offer, hopes have been rekindled to arrest the decline of the Subic port for the past two decades due to the failure of locators and cargo handlers to improve port facilities. They fell short of the commitment to make Subic a magnet for progress and development in Central Luzon. As a consequence of their neglect, five of Subic’s existing ports where they operate are in a state of disarray.

Before the SBMA could consider HCPT’s proposal, industry players were given the opportunity to match the company’s offer through a

“Swiss challenge” in conformity with bidding practices. SBMA Administrator Armand Arreza urged interested bidders to submit their counter-proposals not later than April 22 but no new offer was received by the Authority upon the lapse of the deadline. That means the SBMA was free to give due course to HCPT’s offer. If it has not done so yet, it is because of the existing ban on the awarding of government contracts during the election period.

Under the terms of its unsolicited proposal, the HCPT will handle port operations and invest about P6 billion for improvements and acquisition of new equipment to enhance the Subic port’s global competitiveness. This will encourage more foreign investors to come in.

The Harbour Centre commits itself to remit to SBMA a guaranteed income of $32 million over 25 years, or $1.2 million to $1.3 million a year.

The SBMA would likewise have a share of 15 to 20 percent of total revenues each year for 25 years. Part of the HCPT’s proposal is to substantially increase the volume of goods that will be traded in the Subic port which will generate bigger revenues for the SBMA. These favorable terms are a far cry from what the SBMA earns under current cargo handling operations—less than P20 million a year plus a revenue share of 10-15 percent.

Detractors have criticized the proposed agreement between SBMA by raising the specter of a monopoly of cargo handling operations in the premier port at the expense of existing companies engaged in similar services. Perhaps a more relevant question is whether it is wise and judicious to put an end to the domination of locators and cargo handlers whose neglect of the modernization needs of the Subic port has caused its stagnation.

If the existing operators find themselves being eased out, they have nobody to blame but themselves. They have not even bothered to undertake a comprehensive plan to upgrade facilities. The cargo handlers at the Boton, Rivera, Alava and Bravo ports did not feel obliged to invest part of their income for the upgrading program and transform these ports into big players in the economy. Perhaps, they have the illusion that they have a franchise to the privilege and even proprietary right in running their business at Subic. As Administrator Arreza succinctly put it: “The existing cargo operators have no exclusive rights to operate at the Subic port. If they want exclusive right, then they should submit their bids.” But as events have shown, they themselves forfeited this right by not submitting any counter-bid that would be more advantageous to the government than what the HCPT has offered.